Bloomberg News

Ugandan Shilling Weakens for First Day in Four Before Strike

July 05, 2011

July 5 (Bloomberg) -- Uganda’s shilling weakened for the first time in four trading days ahead of a strike tomorrow by retail traders in the capital, Kampala.

The currency of Africa’s second-biggest coffee producer fell 1.3 percent to 2,550 shillings per dollar at 4:31 p.m. in Kampala, bringing its losses so far this year to 9.4 percent. It closed at 2,517.50 shillings yesterday.

Shops in the city will be closed tomorrow and July 7 as traders protest rising prices for consumer goods and the shilling’s depreciation against the dollar, the Daily Monitor reported, citing the Kampala City Traders’ Association. Inflation in the East African country slowed to 15.8 percent in June after reaching a 17-year high of 16 percent in May, while the shilling fell to an 18-year low last month.

There had been expectations that the Bank of Uganda might sell dollars in the domestic market amid concern that the strike may lead to unrest, said Ahmed Kalule, a currency trader at Bank of Africa Uganda. In April and May, police in Uganda used teargas and rubber bullets to disperse opposition supporters protesting over the rising cost of living.

Demand for dollars picked up today after the central bank refrained from sales of the U.S. currency, said Kalule.

“People also have it in their minds that Uganda doesn’t have enough reserves, so whenever the shilling tries to gain ground, there is speculative buying” of dollars, Kalule said in a phone interview.

The central bank has sold dollars in the domestic foreign- exchange market at least four times since June 15 as the currency weakened to its lowest level since June 1993. Governor Emmanuel Tumusiime-Mutebile said last month the bank “shall not hesitate” to stem speculative trading in the currency.

The central bank’s foreign reserves currently stand at 5.62 trillion shillings ($2.2 billion), according to the bank’s website.

--Editors: Paul Richardson, Stephen Kirkland.

To contact the reporter on this story: Fred Ojambo in Kampala via Nairobi at pmrichardson@bloomberg.net.

To contact the editor responsible for this story: Paul Richardson at pmrichardson@bloomberg.net.


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